Quick Facts

Russia’s prospects for long-term, diversified, sustainable economic growth remain bleak. There is no efficiently functioning legal framework, and government continues to interfere in the private sector through myriad state-owned enterprises. Corruption pervades the economy and continues to erode trust in the government.

Economic Freedom Snapshot

2016 Economic Freedom Score: 50.6 (down 1.5 points)

Economic Freedom Status: Mostly Unfree

Global Ranking: 153rd

Regional Ranking: 42nd in Europe

Notable Successes: Fiscal Freedom

Concerns: Rule of Law, Labor Freedom, and Investment Freedom

Overall Score Change Since 2012: +0.1

Progress with market-oriented reforms has been uneven and often reversed at the urging of those with an interest in maintaining the status quo. Increasing inflationary pressure poses a major risk to overall macroeconomic stability. Large state-owned institutions have increased their domination of the financial sector at the expense of private domestic and foreign banks.

Background

Vladimir Putin was reelected president in March 2012 on the heels of hotly disputed December 2011 Duma elections. Russia illegally annexed Ukraine’s Autonomous Republic of Crimea early in 2014. Moscow’s support of Russian separatists in Ukraine has led to capital outflows and targeted sanctions by the United States and the European Union. Russia’s economy is heavily dependent on oil and gas exports. The low price of oil, the financial burden of annexing Crimea, and the desire to rearm the Russian military have strained public finances. The economy is in recession, contracting in 2015. Russia became a member of the World Trade Organization in August 2012, but its bid to join the Organisation for Economic Co-operation and Development has been postponed as a result of its recent actions in Ukraine.

Corruption is pervasive. Small elites control the bulk of the nation’s assets, and state institutions have been corroded. The main purpose of frequent anti-corruption campaigns is to ensure elite loyalty and hamper political opponents. The rule of law is not maintained uniformly across the country, and the judiciary is vulnerable to political pressure and inconsistent in applying the law. Protection of private property rights is weak.

The personal income tax rate is a flat 13 percent, and the top corporate tax rate is 20 percent. The overall tax burden equals 34.8 percent of total domestic income. Government spending amounts to 38.2 percent of GDP. Public debt remains under 20 percent of annual domestic output. A budgetary rule that had been implemented in 2013 to control budget deficits was abandoned in 2015.

Russia’s average tariff rate is 6.3 percent. The government’s import substitution policy, intended to replace imports with domestically produced goods, interferes with trade and investment. State-owned enterprises significantly distort Russia’s economy. State-owned financial institutions have further solidified their position by taking market share from domestic private banks and increasing their control of lending.